I own both, dude. I know whereof I speak.

I own both and have them sitting next to each other.  The Xbox 360 is smaller than the PS3, but only slightly.  Officially here are their dimensions:

The Xbоx 360 is 12.15" wide x 3.27" high x 10.15" deep

The PS3 is 12.8" wide x 3.8" high x 10.8" deep

Therefore the PS3 is only 0.65" wider, 0.53" higher, and 0.65" deeper.  Pretty close if you ask me.  Add to this the fact that the power supply for the PS3 is on the inside, while the Xbox 360 requires a huge external brick, and the edge is probably to PS3.

Look at the shelf space the current PS3 model requires. Places like Walmart, and Target, which sell a high volume of all consoles sold can only hold about 4 - 8 PS3's in their display case. Compare that to the likes of the PS2/360/Wii, and you nearly have a 3/1 ratio. This means stores have to stock more PS3's in the back, and likly have to have more on hand at any givin time. Thus the store is less likly to promote a device that is costing them more floorspace, and it turns into a vicious cycle.

By making a slim PS3 Sony gets;

-Instant reduction in cost of production
-Ability to manufacture, and store more units internally
-Reduced transpertation costs, by air, ground, and sea
-A face lift to the system, making some take a second, or first look at it

By making a slim PS3 consumers get;

-A smaller unit, that is easier to deal with in nearly every aspect
-A system that uses less enegy
-A system that comes at a cheaper price

Any way you look at it a slim PS3 is good. Both Sony and the consumers benifit from it, but it is not the best thing that could happen to the PS3. IMO, a PS3 slim would require software B/C with PS2 to truly make the impact it is capable of.

the gamecube was already tiny as hell and nintendo loves using old tech in their products to make it cheaper to sell at a high cost so maybe the chips in the gamecube werent shrunk further

The xbox was killed off prematurly if MS stuck with the machine I bet it would have gotten smaller.

I think it is likely a slim model will surface, just because Sony tends to do this with all their products, it is a constant evolution with pretty much all of their electronics.

But I do see your point. Traditionally only successful consoles have seen a slim revision the NES and the SNES are examples.

The simple matter of the fact is that the R&D for a slimline PS3 has been ongoing since its launch. The whole idea of the slimline is cost cutting, they generally increase sales as well.

Every time that Sony shrinks the chips and removes unnecessary baggage reduces costs and brings the console a step closer to a slimline model.

Do you think that with the PS2 there was just one PS2 and then the PSTwo? No, there would have been several models of the PS2 with lots of cost cutting in each one. Eventually, Sony gets the hardware down so much that they can redesign the casing, and bababin, bababoom, there's the PSTwo. As time goes on different models of the PSTwo are released, cost cutting even further.

The same thing will happen with the PS3, and it's already happening. The difference is; this time, they're moving faster to get costs down because they are sky-high, and they need to turn to profitability soon.

Slimline models are one of the biggest cost cutting things out there. For the first time, the casing will shrink, the PSU might go external, which saves on cooling, and other hardware revisions may be made changing stuff inside to do with the WiFi and such (the PSTwo lost it's ability to attach a HDD, for example).

Another huge advantage of slimline models is packaging, the boxes and protection will be much smaller, cutting costs there, transportation will be cheaper, as will storage.

Slimline models also have an effect on demand. The new SKU gives off a higher value and it buys Sony more time before they cut the price, and it may even mean they can drop the price less when they do price cut.

In conclusion, slimline models cut costs down, and allow for prices to stay higher, it's win-win for Sony.